irs.gov/taxtopics/tc409 The tax rate on most net capital gain is no higher than 15% for most individuals. Some or all net capital gain may be taxed at 0% if your taxable income is less than $80,000
Thanks for great explanation. Some sites out there are saying 15% tax on Depreciation Reduction and Capital Gain (sale price minus original basis minus depreciation) PLUS 25% extra on just Depreciation Reduction.
omg... it's a prison, you cannot escape!!! my stomach is turning, I dont mind paying capital gains on trading, but this real estate is bus is a jungle, it is tough and just when you think you can escape it, 250,000USD in tax, makes me sick, it's a trap..my next stop is a banana tree! it' not right, it would be just fine of course if the taxed dollar went to helping communities, schools etc... the cities the roads the schools are un down!!!!!!!! it hurts so bad, great explanation though.
TheSoloAsylum This guy explanation is very accurate. Right now I am having sleepless nights because my tax preparer gave wrong information. I did not check for a second opinion and went to signed escrow documents. I can’t back up on the deal otherwise I would be sue by Broker and wealthy buyer. Who wants to deal with attorneys. Selling on installments in order to save capital gains, but depressed and Amortization over 22 years in a 1.700.000 basis property..just figure out my anguish and head ache now, knowing that for closing escrow with first installment I must come up with $900.000 for Uncle Sam. I was expected around $450.000, but double this money only in federal and state taxes ? California and LA county
Can a parent or in-law be a third party intermediary for the 1031 exchange? You said a down payment can't be used for the purchase of the purchased investment property after selling your initial investment property. The down payment is for the house itself. Why can't the monies be used? If I have a property and I purchased it 20 plus years ago for 250k in 2002. The mortgage is now 110K. I've invested over the years 200 to 300K into the property. I depreciated the property on my taxes. I bought this property prior to being married. We file jointly since 2010. If I utilize a reputable 1031 exchange for example IPX1031 do I send them the entire proceeds from the sale or just the equity into the replacement property? If I were to send the entire proceeds would that prevent me from the depreciation recapture until a later date by doing the 1031 exchange. I plan on utilizing the 1031 exchange also as estate planning so in this way my children will not have to pay any capital gains on this property as I'm a cancer survivor. Thanking you in advance.
Thank you for the video, it is very informative. I understand the rule that if you take a depreciation on your rental that you have to reduce your basis by the depreciation. My question is supposing we don't take a depreciation or some years we don't take a depreciation on your rental, do we still have to reduce our basis from those missing years? Thank you.
I'm confused. How is it a phantom gain if at the end I'll be paying an extra 10K to the government? I'm not understanding that. I thought depreciation on the house was a tax deduction? So, I subtract that figure from what I'd be paying right?
2 Questons: 1) We owned and lived in house #1 as PRIMARY for 8 years. Then leased it for 4 years. Moved back at the four year mark for 2 additional years as primary. ( I did claim depreciation during the rental period). If I sell it after I made it my primary for those last 2 years, will I owe capital gains? OR will it be washed off because I went back to live in it for 2 year as my primary? 2) owned house #2 as PRIMARY for 26 months, I can sell and avoid capital gains under the $250/$500 rule as you just described, correct? thank you so much!
I am leasing my gas station in California, will i be taxed on the business sale even though I’m leasing it out? How can i avoid being taxed on the capital gain ? I’ve owned the place for over 20yrs
Hi, my main and only residence home is in Spain (I hold a residencia for 2.5 years), which I am selling to finance a new main residence in the UK. Will I have to pay Spanish CGT, has I will be paying uk 'Stamp Duty' for my new UK residence?
Do you have to put that money in the new property immediately or can there be a gap and you just cant touch the money? For example, if we sold this property and moved with a relative for a few years and then wanted to use that money to buy the next property 3 years later.
I have searched for days to get info on capital gains tax and depreciation recapture and you gave me the most understanding and I greatly thank you for this. I live in Nevada but rent a single family home in Colorado where I see you reside. My question, will I still be paying the roughly 5% Colorado tax when I sell the rental property?
How soon Do I have to buy the new real estate to avoid being taxed on capital gains after selling the old property --- within a year or I can wait longer to buy another real estate
This pertains to home ownership. Can you give example of brothers on tile. My bro helped my refi Jan 2020 and in turn he was apparently placed on title. So after 2 yrs he would get the $250000 exemption correct? Then I get the $250000 exemption of course as I have owned for 20 yrs. His cost bases the same as mine? We owe 200000 and sell for 1000000 having $800000 in profit. What does cap gains look like in this scenario?
The ridiculous thing I find is you pay taxes when you buy it, you pay taxes to keep it, you pay taxes on profit during ownership, and you pay a crazy amount of taxes to sale it. Can someone explain the though behind this?
It’s a sad state of affairs my friend. It’s just greedy lawyers, turned politicians, extorting funds out of the hard working people. Story as old as time. Plus it’s as much as 1k in fees to do a 1031 w a qualified intermediary, which is another lawyers racket. Sad.
Right after we purchased the rental through our personal names, we transferred the property over to an LLC. We want to buy another rental but it will be under our personal for now for loan qualifying purposes. 1031 exchange doesnt allow diff names on the title. Should I revert the title back to our personal first? How long should it be under our personal?
What if you subdivide land of your primary residence and sell the subdivide land, how do you avoid the capital gains? Married, 5 yrs primary residence. 12.8acres, subdivided off 5 acres to sell. Weatherford, TX
You can defer the taxes if you buy replacement property under a properly structured Section 1031 exchange. See your favorite CPA. While you are there, ask that favorite CPA to explain partial disposition of primary residence.
Thank you for the great video! One question, how mixed use property (25% rental, 75% owner occupied) for the last 5 years get treated for capital gain? Thank you very much!
I inherited a house many years ago at a base of $100.000. If I gift it to my daughter at a base now worth $500.000 and she makes it her personal home for 2 years and then sells it for $500.000 does she have to pay capital gains or is there any tax implications to either me or her?
I have a irrevocable trust for my primary residence and a few income properties. When I pass away my children would like to keep the income properties. Do they have to pay capital gains taxes on the inheritance. The trust expires upon my death.
If the owner dies, the inheritance would be subject to a stepped up basis so the depreciated amount shouldn't be taxable to your heirs, but you have to die to avoid the taxes. If you ever sell and don't reinvest it into a like kind property then you owe the taxes on the depreciation that you took or could of taken but didn't.
Hi, Thanks for educating me. I hope you can help me. I've never done anything like this before. I inherited 110 acres 16 years ago. I know the basis is what it was worth when I inherited it. How do I determine that? I have a buyer and wanted to know if I declare the profit in the year I turn 65 will I have to pay back a dollar for every two I earn over the limit of 17,864.00 to Social Security? Could I take half this year and half next year to avoid the bracket jump in state and federal taxes? Or, am I worried about nothing?
You brought up too many disparate issues to answer correctly online. You need to see your favorite competent CPA who spends a lot of his year preparing income tax returns.
I clearly understand the taxes on a sale of rental property. Simply put, 15% on regular capital gains and simple income rate on depreciation (22% for most in 2019). What I don't understand is how to fill out the 4797 and schedule D so I get the two rates. Every attempt I make ends up with me entering the TOTAL gain (difference in sale price plus depreciation less the adjusted cost base) on line 6 of the 1040. Line 6 is one of the simple income lines so I'll be paying 22% on all of it. All of the videos I watch and articles I read give detailed explanations on what needs to be done including preparing form 4797 and schedule D, but none show HOW to correctly prepare the docs. HELP!
It's very confusing but I believe you use a worksheet that does not get sent in with your tax return, similar to the worksheet for annual depreciation to figure your Schedule D taxes. The IRS doesn't want a clear explanation of how you came up with the capital gains and recapture taxes but you better have the worksheet to prove that your figures are correct if they ever audit you. I sold my first rental investment home and usually do my own taxes. A CPA wants $800 to $1,000 to do my taxes when I really only need assistance with Form 4797 and Schedule D. That's a hefty price to fill out two forms with figures that I provide.
Thanks for the video. one question I have is the 25% tax rate on the depreciation of $40K. Is that a set rate, could it be lower if I have less income? Thanks,
It's a shame you did not get a reply because I was told the 25% rate was the maximum rate and if your ordinary income plus recaptured deprecation only put you in the 22% Federal tax bracket that you would pay that rate. Capital gains would not affect the rate as it is taxed separately. That might be incorrect but that's what my CPA told me. Everywhere you see the term depreciation recapture tax it always shows 25% MAXIMUM rate not flat 25% tax rate.
Question. I purchase my house back in 1998 for $110K. N now sold for sell piece for $285K I’m single n have live there for over 20 plus years. Do I exempt capital gain for single $250K. Please explain
HelloHow are you? tell me how does capital gains tax affect property prices? do they increase or decrease? due to the fact that the more you ask for property the more tax you pay? or do they ask a lot to compensate for the loss?
Thanks for the questions, Liselle. Federal capital gains tax is typically based on the tax bracket you are in or the type of entity you are selling as. It's best to verify your capital gains rate with your CPA. Don’t forget that you may have to pay state capital gains tax as well. Generally speaking, the higher your sale price, the more you'll pay in capital gains tax unless you complete a fully deferred 1031 exchange. Paul
Thank you for explaining this. What is the basis for the second purchase, made under 1031? Is it the original $200K? If not, if it is the new $600K how long to I have to hold it for the stepup to be valid?
I sold a rental property and will make $230K on the closing date soon. I have farmland that I wish to pay off with at least $175K. I'm not a high-income earner. Would this apply to deferred under 1031?
Hi, Will it mater if I have a loan of 50K in your example, still need to find a replacement property of 600K, what if I just find another property for 500K only, Do I need to pay the 100K * Fed + State rate tax?
I got a question for you --- if I buy a house and turn around and sell to make money. I make 80k a year and my wife makes 0. To save capital gains tax is it better to put the house in my wife's name?
In your example, would you deduct the $90,000 from the $400k, making it $310k profit? Of course I would deduct closing costs etc and what the loan balance from that amount. Also, when filing taxes, would you add the $90k to your AGI?
Thanks for the video, it is very informative. I would like to know about the amount of money the investor used to fix and maintain the house. In order to sell it $600K, the owner might have to spend $100K more.
When you add the depreciation to IRS Schedule E and deduct it from your annual taxable income, you most certainly used that same adjusted gross income on your state income tax returns, so you saved annually on state income taxes by deferring the taxes and I feel sure they expect it to be paid back.
I bought land in co 6 months ago for 150k , I was thinking to put for sale now for 430k. So will be short term Capitol gain , how much I’ll pay on tax ?? should I wait turn one year to sell ?? I’m married and under 200 k year income
I bought a house 10 years ago, $100,000 and rented it, now I want to sell it for $350,000 after renovate it and spend about $15,000, my income is about $200,000, about how much I have to pay tax? because my tax bracket is high.
If you one day decide to sell the property you deferred into a 1031, you will pay capital gains right? So pretty much no matter what, you'll end up paying capital gains 1 day or the other?
Hi Thank you for your video. I filed married Filing Jointly and our income is under $ 75,000 for 2020. But we sold some investment property in Jan and the L T. Capital gain is more than $500,000. Do I need to add this $500K to the $75,000 to determine the capital gain tax rate? 20% ? Thanks, Jenny
When you own an investment property (single family home for example) the IRS requires you to deduct depreciation on that property less the cost of the land. Land is not depreciated. If you purchase a home for $200,000 and the lot is worth $40,000, then you can deduct $160,000 over 27.5 years. That amount would be $5,818 annually. This amount goes on Schedule E and deducted from your taxable income. This is deferred to whenever you sell the property and not tax free. If you make major improvements, like a new roof, then that amount is also added to the total amount depreciated over time. There is a limit on how much can be deducted annually as expenses for major improvements. When you sell the property, you must recapture the amount that you depreciated and pay the taxes that were deferred. That is taxed at a maximum rate of 25% but I believe it could be less depending on the tax rate of your ordinary income. If you don't depreciate annually, you don't save the taxes annually but you still owe the recapture tax as a penalty for not taking it. So, it's very important to depreciate rental property annually or you pay tax twice on the same income.
I bought a rental condo for $55.000. My income is $10.000 yearly. If I sell the condo for $120.000 do I have to pay CGTax or none because of low income?
Could you give me a ballpark of my situation. I purchased for $220k. Will sell for $400k. $50k in depreciation. 6% commission on 400k. I live in California so around 10% in state taxes. Is 15% the correct fed tax rate. I make $70k per year from my pension
Why would I pay taxes on depreciation? Doesn't that mean I lost 40k in repairs and and such? Why would I pay 25% on that? I'm sure you are right I just don't understand. Thank you.
Abay Singh do you have an answer to your question yet? sounds like money laundering to me but if it's not then I'd definitely like to take advantage of that
Hello ! Thank you for your time and information. Now I have a income property ( duplex ) bought it for 192k and still own them 125k I have been living here for 15 year and I rent the back house and I live in front . Planning to sale it for 640k I live in Los Angeles Ca . How to avoid the capital gain tax !???? Thank iouy
Hi. Thanks for reaching out. I will have to make certain assumptions on your situation but please call me to discuss specific details of your sale (303-865-7304 - Paul). Assuming the Duplex has equal value on both sides, I will assign an initial basis of $96K for each side of the property.If you sell for $640K, I will assume equal value on each side of the duplex so each side will be valued at $320K On the principal residence side of the Duplex, you may be able to get to all of the gain (320k-96k = 224K of gain) tax free un IRC 121 of the code since you have been living there for 2 of the past 5 years. Please confirm your eligibility with your CPA. On the investment property side of the Duplex, you will need to do a IRC 1031 exchange and at best you will be able to defer the gain ($224K) into the new investment property if you purchase a replacement investment property for $320K or greater and reinvest all of the 1031 proceeds into the new investment property without receiving any cash back. You will need to run the 1031 exchange through a company like Accruit and make sure that the 1031 exchange is put into place prior to the sale of the investment property.
@@Accruit 1031 exchange is getting harder and harder these days. It is not possible to get a replacement property unless you massively overpay. Reverse exchange is what everyone's doing but it is hard to find financing for it. Any suggestions on finding bridge loans for reverse exchange?
I purchased a house in Florida 2003 and it has been depreciated for 13 years. Purchase price 270k, I am selling and expect 300k, 18k to realtor and I owe 182k how much will I be paying in taxes? Also I live in Pennsylvania will I have to pay the state sale tax for Pennsylvania which is 3% even though the house is in Florida? One last question sir if I do a 1031 exchange does the property that I purchase have to be of equal value or just something similar but cheaper?
Your calculations are wrong. Your gain is not 400k Your gain is 440K because you need to subtract the 40k depreciation from the 200k cost basis down to 160k Therefore 600k-160k gives you a gain of 440k. Thus your capital gains tax is 88k rather than 80k. Your calculation as stated is incorrect.
The capital gain is sales price less original purchase. The "extra gain" you think he missed is depreciation recapture, which is taxed at 25%, not 15%. He accounted for it correctly. Watch the entire video and refer to Parts III and IV of Form 4797. What he failed to do is discuss how depreciation recapture applies to his state.
Highway robbery is a better way of describing the taxes you pay on a sale. So basically realize massive amounts of taxes that get squandered on bullshit or go broke by being in debt forever. Nice
I must say that knowing you is my greatest achievement in life, i receive my profit $10,000 successful, all thanks to Mrs Mary may God keep on blessing you.
Wow I'm just shock someone mentioned expert Mrs Mary I thought I'm the only one trading with her, She helped me recover what I lost trying to trade my self.
They put the title of the video right on the page so you don’t have to add it to your video leaving us staring at a title we already clicked on for several seconds. Hope that helps
Hey Paul, say I saw you at the supermarket by complete happenstance. Would you be freaked out if I hugged you? I’d be justified. It’s as if your lectures came from heaven my friend.
Yes you do have to pay it. You missed out on the tax deduction annually, but you still have to pay taxes on the amount that you should have deducted. That sounds crazy but it's true.
@@daleholston9571 I don’t understand Since I never used depreciation Then I don’t add to closing costs and then I don’t pay on the depreciation, I only mean on depreciation
@@Cora-Lia- The IRS requires you to depreciate investment property annually. This is not a choice. If you fail to depreciate the investment property annually, then you don't get the annual tax deduction and you will still have to pay the recapture tax as if you did deduct it. You need to speak with a tax professional. A lot of people do not know about this when renting out a single home or a couple rental homes but it's a fact and it can be an expensive mistake.
When you own an investment property (single family home for example) the IRS requires you to deduct depreciation on that property less the cost of the land. Land is not depreciated. If you purchase a home for $200,000 and the lot is worth $40,000, then you can deduct $160,000 over 27.5 years. That amount would be $5,818 annually. This amount goes on Schedule E and deducted from your taxable income. This is deferred to whenever you sell the property and not tax free. If you make major improvements, like a new roof, then that amount is also added to the total amount depreciated over time. There is a limit on how much can be deducted annually as expenses for major improvements. When you sell the property, you must recapture the amount that you depreciated and pay the taxes that were deferred. That is taxed at a maximum rate of 25% but I believe it could be less depending on the tax rate of your ordinary income. If you don't depreciate annually, you don't save the taxes annually but you still owe the recapture tax as a penalty for not taking it. So, it's very important to depreciate rental property annually or you pay tax twice on the same income.
Hi, my main and only residence home is in Spain (I hold a residencia for 2.5 years), which I am selling to finance a new main residence in the UK. Will I have to pay Spanish CGT, has I will be paying uk 'Stamp Duty' for my new UK residence?
Perfect clarity in a single viewing. Thanks for your help.
What an awesome explanation. For a layman like me it was easy to understand. Thank you so much
irs.gov/taxtopics/tc409
The tax rate on most net capital gain is no higher than 15% for most individuals. Some or all net capital gain may be taxed at 0% if your taxable income is less than $80,000
Correct, why would he leave that part out?
Thanks for great explanation. Some sites out there are saying 15% tax on Depreciation Reduction and Capital Gain (sale price minus original basis minus depreciation) PLUS 25% extra on just Depreciation Reduction.
Thank you for the knowledge, no tax on exchange...
Thanks for the clarity of breakdown 🙏🏻
Paul....What about a time line for using the home sale money to re-invest ?
omg... it's a prison, you cannot escape!!! my stomach is turning, I dont mind paying capital gains on trading, but this real estate
is bus is a jungle, it is tough and just when you think you can escape it, 250,000USD in tax, makes me sick, it's a trap..my next stop is a banana tree! it' not right, it would be just fine of course if the taxed dollar went to helping communities, schools etc... the cities the roads the schools are un down!!!!!!!! it hurts so bad, great explanation though.
Don't be fooled by these numbers, they are inflated bullshit, and the math is wrong to start with.
TheSoloAsylum This guy explanation is very accurate. Right now I am having sleepless nights because my tax preparer gave wrong information. I did not check for a second opinion and went to signed escrow documents. I can’t back up on the deal otherwise I would be sue by Broker and wealthy buyer. Who wants to deal with attorneys. Selling on installments in order to save capital gains, but depressed and Amortization over 22 years in a 1.700.000 basis property..just figure out my anguish and head ache now, knowing that for closing escrow with first installment I must come up with $900.000 for Uncle Sam. I was expected around $450.000, but double this money only in federal and state taxes ? California and LA county
@@angelavillanueva6991 sorry to hear that
Can a parent or in-law be a third party intermediary for the 1031 exchange? You said a down payment can't be used for the purchase of the purchased investment property after selling your initial investment property. The down payment is for the house itself. Why can't the monies be used? If I have a property and I purchased it 20 plus years ago for 250k in 2002. The mortgage is now 110K. I've invested over the years 200 to 300K into the property. I depreciated the property on my taxes. I bought this property prior to being married. We file jointly since 2010. If I utilize a reputable 1031 exchange for example IPX1031 do I send them the entire proceeds from the sale or just the equity into the replacement property? If I were to send the entire proceeds would that prevent me from the depreciation recapture until a later date by doing the 1031 exchange. I plan on utilizing the 1031 exchange also as estate planning so in this way my children will not have to pay any capital gains on this property as I'm a cancer survivor. Thanking you in advance.
Thank you for the video, it is very informative. I understand the rule that if you take a depreciation on your rental that you have to reduce your basis by the depreciation. My question is supposing we don't take a depreciation or some years we don't take a depreciation on your rental, do we still have to reduce our basis from those missing years? Thank you.
I'm confused. How is it a phantom gain if at the end I'll be paying an extra 10K to the government? I'm not understanding that. I thought depreciation on the house was a tax deduction? So, I subtract that figure from what I'd be paying right?
Excellent Video. Thanks for the video
2 Questons:
1) We owned and lived in house #1 as PRIMARY for 8 years. Then leased it for 4 years. Moved back at the four year mark for 2 additional years as primary.
( I did claim depreciation during the rental period).
If I sell it after I made it my primary for those last 2 years, will I owe capital gains?
OR will it be washed off because I went back to live in it for 2 year as my primary?
2) owned house #2 as PRIMARY for 26 months, I can sell and avoid capital gains under the $250/$500 rule as you just described, correct?
thank you so much!
is i have rental property and later i demolish the house and make new for myself. then i sell. do i have to pay property gain tax ?
I am leasing my gas station in California, will i be taxed on the business sale even though I’m leasing it out? How can i avoid being taxed on the capital gain ? I’ve owned the place for over 20yrs
Would this also apply to a mobile home with no land involved?
What about the zero percent tax rate? MFJ zero taxes on first $83,350?
Hi, my main and only residence home is in Spain (I hold a residencia for 2.5 years), which I am selling to finance a new main residence in the UK. Will I have to pay Spanish CGT, has I will be paying uk 'Stamp Duty' for my new UK residence?
Can you move into a rental for 2 years and avoid the capital gains tax? Then sell. Thanks.
Do you have to put that money in the new property immediately or can there be a gap and you just cant touch the money? For example, if we sold this property and moved with a relative for a few years and then wanted to use that money to buy the next property 3 years later.
@P¡nned by Coinskid thanks
I have searched for days to get info on capital gains tax and depreciation recapture and you gave me the most understanding and I greatly thank you for this. I live in Nevada but rent a single family home in Colorado where I see you reside. My question, will I still be paying the roughly 5% Colorado tax when I sell the rental property?
How soon Do I have to buy the new real estate to avoid being taxed on capital gains after selling the old property --- within a year or I can wait longer to buy another real estate
So if im selling my house after 14 months and the property value hasnt changed i'll get destroyed by taxes just because I need to move?
This pertains to home ownership. Can you give example of brothers on tile. My bro helped my refi Jan 2020 and in turn he was apparently placed on title. So after 2 yrs he would get the $250000 exemption correct? Then I get the $250000 exemption of course as I have owned for 20 yrs. His cost bases the same as mine? We owe 200000 and sell for 1000000 having $800000 in profit. What does cap gains look like in this scenario?
The ridiculous thing I find is you pay taxes when you buy it, you pay taxes to keep it, you pay taxes on profit during ownership, and you pay a crazy amount of taxes to sale it. Can someone explain the though behind this?
It’s a sad state of affairs my friend. It’s just greedy lawyers, turned politicians, extorting funds out of the hard working people. Story as old as time. Plus it’s as much as 1k in fees to do a 1031 w a qualified intermediary, which is another lawyers racket. Sad.
At least we can rest easy knowing the government puts it to good use.
Lol
Right after we purchased the rental through our personal names, we transferred the property over to an LLC. We want to buy another rental but it will be under our personal for now for loan qualifying purposes. 1031 exchange doesnt allow diff names on the title. Should I revert the title back to our personal first? How long should it be under our personal?
What if you subdivide land of your primary residence and sell the subdivide land, how do you avoid the capital gains? Married, 5 yrs primary residence. 12.8acres, subdivided off 5 acres to sell. Weatherford, TX
You can defer the taxes if you buy replacement property under a properly structured Section 1031 exchange. See your favorite CPA. While you are there, ask that favorite CPA to explain partial disposition of primary residence.
Thank you for the great video! One question, how mixed use property (25% rental, 75% owner occupied) for the last 5 years get treated for capital gain? Thank you very much!
Damn! NC is 48%!
I inherited a house many years ago at a base of $100.000. If I gift it to my daughter at a base now worth $500.000 and she makes it her personal home for 2 years and then sells it for $500.000 does she have to pay capital gains or is there any tax implications to either me or her?
I have a irrevocable trust for my primary residence and a few income properties. When I pass away my children would like to keep the income properties. Do they have to pay capital gains taxes on the inheritance. The trust expires upon my death.
so when taxes are deferred forward onto reinvested properties what happens??? one ends up paying those taxes eventually down the road right??
If the owner dies, the inheritance would be subject to a stepped up basis so the depreciated amount shouldn't be taxable to your heirs, but you have to die to avoid the taxes. If you ever sell and don't reinvest it into a like kind property then you owe the taxes on the depreciation that you took or could of taken but didn't.
Hi, Thanks for educating me. I hope you can help me. I've never done anything like this before. I inherited 110 acres 16 years ago. I know the basis is what it was worth when I inherited it. How do I determine that? I have a buyer and wanted to know if I declare the profit in the year I turn 65 will I have to pay back a dollar for every two I earn over the limit of 17,864.00 to Social Security? Could I take half this year and half next year to avoid the bracket jump in state and federal taxes? Or, am I worried about nothing?
You brought up too many disparate issues to answer correctly online. You need to see your favorite competent CPA who spends a lot of his year preparing income tax returns.
I clearly understand the taxes on a sale of rental property. Simply put, 15% on regular capital gains and simple income rate on depreciation (22% for most in 2019). What I don't understand is how to fill out the 4797 and schedule D so I get the two rates. Every attempt I make ends up with me entering the TOTAL gain (difference in sale price plus depreciation less the adjusted cost base) on line 6 of the 1040. Line 6 is one of the simple income lines so I'll be paying 22% on all of it. All of the videos I watch and articles I read give detailed explanations on what needs to be done including preparing form 4797 and schedule D, but none show HOW to correctly prepare the docs. HELP!
It's very confusing but I believe you use a worksheet that does not get sent in with your tax return, similar to the worksheet for annual depreciation to figure your Schedule D taxes. The IRS doesn't want a clear explanation of how you came up with the capital gains and recapture taxes but you better have the worksheet to prove that your figures are correct if they ever audit you. I sold my first rental investment home and usually do my own taxes. A CPA wants $800 to $1,000 to do my taxes when I really only need assistance with Form 4797 and Schedule D. That's a hefty price to fill out two forms with figures that I provide.
Thanks for the video. one question I have is the 25% tax rate on the depreciation of $40K. Is that a set rate, could it be lower if I have less income? Thanks,
It's a shame you did not get a reply because I was told the 25% rate was the maximum rate and if your ordinary income plus recaptured deprecation only put you in the 22% Federal tax bracket that you would pay that rate. Capital gains would not affect the rate as it is taxed separately. That might be incorrect but that's what my CPA told me. Everywhere you see the term depreciation recapture tax it always shows 25% MAXIMUM rate not flat 25% tax rate.
You are correct. 25% is the max.
@@daleholston9571 Depreciation recapture will be taxed at your ordinary tax rate up to 25% max.
Question. I purchase my house back in 1998 for $110K. N now sold for sell piece for $285K I’m single n have live there for over 20 plus years. Do I exempt capital gain for single $250K. Please explain
HelloHow are you? tell me how does capital gains tax affect property prices? do they increase or decrease? due to the fact that the more you ask for property the more tax you pay? or do they ask a lot to compensate for the loss?
Thanks for the questions, Liselle. Federal capital gains tax is typically based on the tax bracket you are in or the type of entity you are selling as. It's best to verify your capital gains rate with your CPA. Don’t forget that you may have to pay state capital gains tax as well. Generally speaking, the higher your sale price, the more you'll pay in capital gains tax unless you complete a fully deferred 1031 exchange. Paul
Hello thanks for the prompt response tell me what is a deferred 1031 exchange?
Would these #'s apply to a "Real Estate Professional"
Thank you for explaining this. What is the basis for the second purchase, made under 1031? Is it the original $200K? If not, if it is the new $600K how long to I have to hold it for the stepup to be valid?
I sold a rental property and will make $230K on the closing date soon. I have farmland that I wish to pay off with at least $175K. I'm not a high-income earner. Would this apply to deferred under 1031?
Hi, Will it mater if I have a loan of 50K in your example, still need to find a replacement property of 600K, what if I just find another property for 500K only, Do I need to pay the 100K * Fed + State rate tax?
what about a farm with house in New jersey bought in 1988 for 400k sold for 10million in 2022? is step up 9.6 million?
I got a question for you --- if I buy a house and turn around and sell to make money. I make 80k a year and my wife makes 0. To save capital gains tax is it better to put the house in my wife's name?
what if you sell your house for a profit and have another one built that tgakles 8 months
What if you bought and sold the land within 4 months
In your example, would you deduct the $90,000 from the $400k, making it $310k profit? Of course I would deduct closing costs etc and what the loan balance from that amount. Also, when filing taxes, would you add the $90k to your AGI?
Thanks for the video, it is very informative. I would like to know about the amount of money the investor used to fix and maintain the house. In order to sell it $600K, the owner might have to spend $100K more.
great video! wondering do you have to pay state tax in addition to 25% on the depreciation recapture?
When you add the depreciation to IRS Schedule E and deduct it from your annual taxable income, you most certainly used that same adjusted gross income on your state income tax returns, so you saved annually on state income taxes by deferring the taxes and I feel sure they expect it to be paid back.
Don't forget to add your costs of buying and selling into your basis...that will help with bringing your gain down...!!
If you fall into the 10% or 15% tax bracket at the time of sale dont you avoid paying the tax as well?
Joseph Rivera yes I want to know too
What amount is considered high income
I bought land in co 6 months ago for 150k , I was thinking to put for sale now for 430k. So will be short term Capitol gain , how much I’ll pay on tax ?? should I wait turn one year to sell ?? I’m married and under 200 k year income
Crystal Clear, thank you!
Can you still write off with depreciation if you do the 1031?
1031 replacement property basis is reduced by the deferred gain.
I bought a house 10 years ago, $100,000 and rented it, now I want to sell it for $350,000 after renovate it and spend about $15,000, my income is about $200,000, about how much I have to pay tax? because my tax bracket is high.
Super helpful!! Thank you
If you one day decide to sell the property you deferred into a 1031, you will pay capital gains right? So pretty much no matter what, you'll end up paying capital gains 1 day or the other?
Yes. However, if you die still owning the property, your heirs will get a stepped-up basis and owe no tax.
How much I have to pay on bitcoin 200k capital gain
excellent class, thanks
Hi Thank you for your video. I filed married Filing Jointly and our income is under $ 75,000 for 2020. But we sold some investment property in Jan and the L T. Capital gain is more than $500,000. Do I need to add this $500K to the $75,000 to determine the capital gain tax rate? 20% ? Thanks, Jenny
I’m confused what is depr. mean?
When you own an investment property (single family home for example) the IRS requires you to deduct depreciation on that property less the cost of the land. Land is not depreciated. If you purchase a home for $200,000 and the lot is worth $40,000, then you can deduct $160,000 over 27.5 years. That amount would be $5,818 annually. This amount goes on Schedule E and deducted from your taxable income. This is deferred to whenever you sell the property and not tax free. If you make major improvements, like a new roof, then that amount is also added to the total amount depreciated over time. There is a limit on how much can be deducted annually as expenses for major improvements. When you sell the property, you must recapture the amount that you depreciated and pay the taxes that were deferred. That is taxed at a maximum rate of 25% but I believe it could be less depending on the tax rate of your ordinary income. If you don't depreciate annually, you don't save the taxes annually but you still owe the recapture tax as a penalty for not taking it. So, it's very important to depreciate rental property annually or you pay tax twice on the same income.
I bought a rental condo for $55.000. My income is $10.000 yearly. If I sell the condo for $120.000 do I have to pay CGTax or none because of low income?
What if from 400k I still own 100k to the bank? Do I still pay tax from 400k?
Federal prison for you
You pay the 100k to the bank and you will have to pay capital gain from the profit which in this case will be 300k
Could you give me a ballpark of my situation. I purchased for $220k. Will sell for $400k. $50k in depreciation. 6% commission on 400k. I live in California so around 10% in state taxes. Is 15% the correct fed tax rate. I make $70k per year from my pension
Why would I pay taxes on depreciation? Doesn't that mean I lost 40k in repairs and and such? Why would I pay 25% on that? I'm sure you are right I just don't understand. Thank you.
It has nothing to do with repairs. You pay tax on the depreciation you previously deducted. It is called depreciation recapture.
Thank you for the very informative video. Is it true the investor can avoid any taxes by gifting all proceeds it to a child?
Abay Singh do you have an answer to your question yet? sounds like money laundering to me but if it's not then I'd definitely like to take advantage of that
Nope...
You can pass it onto family and they would only pay a minor percentage of what you would of paid.
Or die and be taxed the death tax rate of 55%....inheritance tax is what I believe its called.
Hello ! Thank you for your time and information. Now I have a income property ( duplex ) bought it for 192k and still own them 125k I have been living here for 15 year and I rent the back house and I live in front . Planning to sale it for 640k I live in Los Angeles Ca . How to avoid the capital gain tax !???? Thank iouy
Hi. Thanks for reaching out. I will have to make certain assumptions on your situation but please call me to discuss specific details of your sale (303-865-7304 - Paul).
Assuming the Duplex has equal value on both sides, I will assign an initial basis of $96K for each side of the property.If you sell for $640K, I will assume equal value on each side of the duplex so each side will be valued at $320K
On the principal residence side of the Duplex, you may be able to get to all of the gain (320k-96k = 224K of gain) tax free un IRC 121 of the code since you have been living there for 2 of the past 5 years. Please confirm your eligibility with your CPA.
On the investment property side of the Duplex, you will need to do a IRC 1031 exchange and at best you will be able to defer the gain ($224K) into the new investment property if you purchase a replacement investment property for $320K or greater and reinvest all of the 1031 proceeds into the new investment property without receiving any cash back. You will need to run the 1031 exchange through a company like Accruit and make sure that the 1031 exchange is put into place prior to the sale of the investment property.
How long do you have to hold on to the property in order to get a tax differ or avoid all those taxes ??
@@Accruit 1031 exchange is getting harder and harder these days. It is not possible to get a replacement property unless you massively overpay. Reverse exchange is what everyone's doing but it is hard to find financing for it. Any suggestions on finding bridge loans for reverse exchange?
Capital gain of 400K needs to be splits as 40K (up to 25% tax) and 360K( capital gain tax ) , instead of 40K and 400K. Can anybody verity it?
Thank you for the information which was explained even I could understand
Thanks a ton for this info
It not a full 25% on depreciation. Its blended
Excellent.
I purchased a house in Florida 2003 and it has been depreciated for 13 years. Purchase price 270k, I am selling and expect 300k, 18k to realtor and I owe 182k how much will I be paying in taxes? Also I live in Pennsylvania will I have to pay the state sale tax for Pennsylvania which is 3% even though the house is in Florida? One last question sir if I do a 1031 exchange does the property that I purchase have to be of equal value or just something similar but cheaper?
The check you receive at closing after all expenses are done is the amount you will be taxed on. It just on the money you actually receive (The Gain)
@@TheSoloAsylum That is incorrect.
Damn irs
Your calculations are wrong. Your gain is not 400k Your gain is 440K because you need to subtract the 40k depreciation from the 200k cost basis down to 160k Therefore 600k-160k gives you a gain of 440k. Thus your capital gains tax is 88k rather than 80k. Your calculation as stated is incorrect.
The capital gain is sales price less original purchase. The "extra gain" you think he missed is depreciation recapture, which is taxed at 25%, not 15%. He accounted for it correctly. Watch the entire video and refer to Parts III and IV of Form 4797. What he failed to do is discuss how depreciation recapture applies to his state.
@@williamowens5542 is it the same if i am non resident filling 1040nr? Same tax rate?
Highway robbery is a better way of describing the taxes you pay on a sale. So basically realize massive amounts of taxes that get squandered on bullshit or go broke by being in debt forever. Nice
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Property just not worth it.. Ugh
They put the title of the video right on the page so you don’t have to add it to your video leaving us staring at a title we already clicked on for several seconds. Hope that helps
.*My votes .goes to q5cyber he’s .just like a magician I really .appreciate .everything .you did✅*
He seems smart, I bet he’s a high in come murmur.
Hey Paul, say I saw you at the supermarket by complete happenstance. Would you be freaked out if I hugged you? I’d be justified. It’s as if your lectures came from heaven my friend.
Taxation is theft. Fuck.
A lot of your hard earned money taken to make weapons. The industrial military complex makes me sick.
I never did depreciation
That means I don’t have to pay for
Yes you do have to pay it. You missed out on the tax deduction annually, but you still have to pay taxes on the amount that you should have deducted. That sounds crazy but it's true.
@@daleholston9571 I don’t understand
Since I never used depreciation
Then I don’t add to closing costs and then I don’t pay on the depreciation, I only mean on depreciation
@@Cora-Lia- The IRS requires you to depreciate investment property annually. This is not a choice. If you fail to depreciate the investment property annually, then you don't get the annual tax deduction and you will still have to pay the recapture tax as if you did deduct it. You need to speak with a tax professional. A lot of people do not know about this when renting out a single home or a couple rental homes but it's a fact and it can be an expensive mistake.
When you own an investment property (single family home for example) the IRS requires you to deduct depreciation on that property less the cost of the land. Land is not depreciated. If you purchase a home for $200,000 and the lot is worth $40,000, then you can deduct $160,000 over 27.5 years. That amount would be $5,818 annually. This amount goes on Schedule E and deducted from your taxable income. This is deferred to whenever you sell the property and not tax free. If you make major improvements, like a new roof, then that amount is also added to the total amount depreciated over time. There is a limit on how much can be deducted annually as expenses for major improvements. When you sell the property, you must recapture the amount that you depreciated and pay the taxes that were deferred. That is taxed at a maximum rate of 25% but I believe it could be less depending on the tax rate of your ordinary income. If you don't depreciate annually, you don't save the taxes annually but you still owe the recapture tax as a penalty for not taking it. So, it's very important to depreciate rental property annually or you pay tax twice on the same income.
Boy is this a dismal explanation! Absolutely zero explanation of how to treat this when filing taxes. Lost in space.
Wrong!
Hi, my main and only residence home is in Spain (I hold a residencia for 2.5 years), which I am selling to finance a new main residence in the UK. Will I have to pay Spanish CGT, has I will be paying uk 'Stamp Duty' for my new UK residence?
.*My votes .goes to q5cyber he’s .just like a magician I really .appreciate .everything .you did✅*